China's major OTA player Qunar is planning to launch a low-cost airline based in Shenzhen. The company confirmed this week that it will initially invest RMB 600 million (USD 92 million) in Shenhui Airlines, in partnership with another local firm in the city.
According to Qunar, the start-up carrier plans to take to the skies as early as in 2017. Shenhui Airlines will build a fleet of 12 aircraft by 2019, enabling it to operate domestic and international flights to destinations in Southeast Asia, Japan and South Korea. The carrier will operate under a low-cost model, and Qunar plans to capitalise on its online expertise to drive sales.
China’s four largest airline companies, namely Air China, China Southern Airlines, China Eastern and Hainan Airlines, claim 80% of China’s aviation market share, yet ticket sales through their direct channels account for only 10%, whereas international airline companies can usually sell up to 40% of their tickets through direct channels.
The State-owned Assets Supervision and Administration Commission of the State Council (SASAC) had decreed state-owned carriers – Air China, China Eastern and China Southern – must elevate their direct sales level to 50% of their total ticket sales. In response, the carriers have to speed up their direct channel enhancement and be less dependent on OTAs such as Qunar and Ctrip.
On the last day of 2015, China Southern and Hainan Airlines announced suspension of their flagship store partnerships with Qunar.com, citing protection of consumer interests. Air China, China Eastern and Capital Airlines followed suit earlier this year.
China Southern announced on February 19 that the sale of air tickets discounted for 60% or more will be restricted to its own website, App or official WeChat account, effectively barring ticketing agents from selling these tickets. Air China announced on February 24 that new criteria have been introduced on its reservation system requiring the booking and issuing of an air ticket be processed by the same agency.
Other than Qunar, another major OTA LY.com (Tong Cheng Lv You) also intends to set up its own airline company. The plan, with no defined time frame, was announced in December last year. LY.com intends to form a professional aviation service team in addition to the company’s existing transport service team. Zhixiang Wu, CEO of Tong Cheng, said the company planned to start out with virtual airline services such as allocating airlines’ capacity with data analysis, offering data and sales services for carriers’ chartered flights and gradually build up their own airline company.
Yi Yu, associate professor of Civil Aviation Management Institute of China, told jiemian.com in Shanghai that it would be very difficult for OTAs to build their own airlines as “the investment is high, the payback period is long, earning pressure will be tremendous and the process is convoluted. There are also the obstacles of getting air rights and building a crew. It’s nothing like operating an online platform”.
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